Evelo Biosciences Stock Forecast [Solving Psoriasis?]

Evelo Biosciences Stock Forecast: Biosciences stocks can present as major investment opportunity. Companies in this space have the potential to hit it big – if they get the technology right. It seems as though each biosciences or biotech firm has a proprietary technology or technique that looks promising for treating an entire family of conditions.

If the company is right and that approach is a valid drug development platform, the returns can be significant for people who buy in early. However, getting FDA approval is not easy.

If the drugs the company develops using that technology fail to obtain that approval, the biotech firm could fold.

In between the two extremes, some biosciences companies develop such useful and novel technology that big Pharma buys them (because it is cheaper than developing their own similar approach), or they combine their efforts with other smaller companies in the space.

As an investor, your job is to research the companies and evaluate what you think will happen next. However, keep in mind that these firms tend to be all-or-nothing, success or failure, and few have drugs using different technologies under development.

Evelo Biosciences Focuses on Intestinal Disorders

Evelo Biosciences [NASDAQ: EVLO] is a biotech company that focuses on leveraging the Small Intestinal Axis (commonly known as “Sintax”) to create oral medications.

This is their drug platform and the company says it is “validated,” which means that early research is promising. If Evelo is correct, they will be able to create drugs that impact the body via the Sintax and limit systemic exposure.

Here’s the basics of how it works.

–       Evelo uses pharmacology to identify microbial strains that could be promising.

–       The single strain, generally a monoclonal microbial or its derivative forms, is explored. This is where the product is formed.

–       Next comes formulation. Evelo looks to balance the dosage.

–       Finally, Evelo manufactures the product. In-house, they handle the process development. Everything else goes out to a network of partners.

Is Evelo Biosciences Stock a Buy?

The connection between the small intestine and the rest of the body is intriguing.

The cells located there – called cytokines – play a vital role in the body’s physiology. There are specialized cells that send and receive signals that modulate the body’s response.

The clinical evidence for the efficacy of leveraging this body part as a platform for addressing certain issues is strong, particularly in the areas of autoimmune, metabolic issues, and neurological problems.

The drugs developed on this platform appear to be safe and well-tolerated, plus than can be encapsulated for convenient administration (as opposed to requiring injection or some other delivery method).

Evelo Biosciences [NASDAQ: EVLO] broad strategy is to develop specialty biologic drugs off the Sintax platform as mid-line therapies, which basically means that they are not targeting people in advanced or severe stages of the conditions nor are they trying to treat mild cases.

However, the drugs developed through a midline focus could be accessed by the entirety of the target population – and the market/conditions the company is targeting is huge.

Evelo’s marquee drug is EDP1815. It is only in Phase 1b, but it has shown strong effectiveness and safety in treating inflammatory diseases like psoriasis.

The feedback is looking like the drug is promising enough that it could warrant a quicker development pipeline. The data from that trial will not be available until 2Q2020.

Psoriasis alone impacts 3.5 million people in France, Spain, Italy, Germany, the US, and the UK combined. Related conditions have an even larger population.

The company also has three other drugs in development as well as a new formulation for EDP1815 that it is testing out. EDP1066 also treats atopic dermatitis while EDP1867 is for asthma and EDP1503 is an oncology drug with potential uses for colorectal and triple-negative breast cancers.

Evelo is collaborating with Merck for this project. The company is also researching the cytokines in the small intestine for their impact on metabolism.

What are the Risks of Buying Evelo Biosciences?

Evelo’s EDP1815 looks promising, but it is very early in testing.

Right now, in Phase 1b, there is a grand total of 30 patients receiving the drug. That is an extremely small sample size.

While preclinical observations look like the biotechnology behind the drug formulation could be used for other conditions, such as asthma, atopic dermatitis, asthma, food allergy, rheumatoid arthritis, and Crohn’s disease, there is no guarantee that the mechanism itself will be effective on a broad scale or that it won’t present side effects that outweigh dealing with the conditions themselves.

There is also the matter of money. Evelo is a company that is focused on the development of drugs. It isn’t actually making money yet.

The firm posted a loss of almost $57 million in 20218, bringing its accumulated deficit to over $113 million – and Evelo will keep incurring these losses until it successfully develops and markets a drug.

There are certain costs to running clinical trials and the company is going deeper in the red as it works to develop new formulations and discover new drugs.

Then, there is actually selling the product. Assuming that Evelo is able to create a medication that is effective and safe, the company still has to successfully market it while continuing to develop new drugs. Evelo will need to reach out to doctors, convince insurance companies to cover it, and advertise to patients so they ask for it.

In reality, there is a chance the company could never turn a single profit, even if made wonderful drugs.

Evelo Biosciences Stock Forecast Summary

Having a pipeline from drug development is important. Evelo is doubling down on a biotechnology – not a specific drug.

That strategy does offer up some hedging through diversification, but if Evelo’s drug platform fails, that’s that for the company. Make no mistake, the risk versus reward here is significant – biotech stocks are not for risk-averse investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.